The killjoys at the Cato Institute have released a new summary of the effects of U.S. borrowing: “Washington’s Largest Monument: Government Debt.” If we assume that there won’t be any political change in the U.S., i.e., that taxing, borrowing, and spending will remain the path to reelection, this serves as a good reminder to keep one’s portfolio balanced with investments in countries that spend and borrow less (e.g., Switzerland). Here are some choice passages:

Economists estimate that the deadweight
losses from each one dollar increase in federal income
taxes is roughly 50 cents, including about 10 cents for
the added compliance or paperwork costs.

Suppose that the government spends $10 billion on a
new subsidy program financed by income taxes. The
program will cost the private economy about $15 billion
when the deadweight losses of the higher taxes are
included. If this new program creates distortions, or is
poorly executed, it may produce benefits of perhaps just $5
billion. That would create an overall ratio of costs to
benefits of 3-to-1.

It is true that the future net burden of federal debt
would be reduced if government borrowing was used for
high-value capital investments. But that is usually not the
case: federal investments are often mismanaged by the
bureaucracy and misallocated by the politicians. In June,
for example, the Government Accountability Office
reported on the government’s $80 billion annual
investment in information technology (IT), and found that
“investments frequently fail, incur cost overruns and
schedule slippages, or contribute little to mission-related
outcomes.”

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6 Comments

lvl

Suppose that the government spends $10 billion.. The
program will cost the private economy about $20 billion
when the deadweight losses of the higher taxes are
included. If this new program creates distortions, …it may produce benefits of perhaps just $2 billion. That would create an overall ratio of costs to
benefits of 10-to-1.

Why that’s even worse than I thought!

Seriously the first part of Cato’s pamphlet is trying to get us excited about debt liberty in the 1820’s and 1830s on the basis of “moral and practical benefits” and the great leaders who rejected “internal improvements” like canals and roads. Then it makes clear that Keynesian Profligacy, 1930–2015 meant that there was huge spending and no restraint since 1930’s and don’t let the Debt/GDP figure fool you – the spending wasn’t restrained, we just had fantastic GDP growth, which is of NO practical or at least moral benefit to anyone, canals, Eisenhower highway system, food assistance, medicare for elderly and all… (?) https://www.globalfinancialdata.com/Databases/Graphs/USAREALPCGDP.png
Terrible isn’t it.

Vince

Regarding the first paragraph that you excerpted about deadweight losses, it probably reasonable to assume that there are economists who disagree with the level of such losses. Regarding, the part about government IT spending, similar statements can probably be made about IT spending in the private sector.

Also, my grandparents told me a little about what life was like in America when they were kids in the 1920s. It was pretty miserable.

Zeke

Things seem to be going well enough for me. Let’s abolish the Federal government.

Let’s turn it around. Phil, why don’t you write a post detailing how much government is just right, and why. How much government do you think would be _too little_. What would it take to convince you that not every thing about every federal agency and program is terrible?

Because cheap-shots like your sarcastic “we wouldn’t have anything” comment give me the impression that your libertarianism (like the Cato Institute’s) is an unfalsifiable belief.
Or do you _actually_ think that the trend line is straight, and that a laissez-faire utopia awaits?